Want to see what a volatility squeeze turns into? Check out the trade I made on BBX Capital ($BBX). (April 18, 2018)


Let’s look at BBX Capital Corp. ( NYSE: BBX ) and this is why: This is where the stock was yesterday. You will notice that, on this particular day, right at the close it was at 9.38. Yesterday I was looking at some of the scans and I saw this stock. It was just popping out of a really, really tight squeeze, as you can see. I actually bought some right at the close and this is what we got today. So I turned out to look pretty smart yesterday buying this right at the close.

But the thing is, frankly, it wasn’t me, it’s not like I was scanning through seven thousand charts and finding just the one that I thought would really, really pop. No, I was just using a mechanical scan and happened to see this stock. I have been doing this for a few years; I honestly was not even familiar with this company. I have no idea what BBX Capital Corp. ( NYSE: BBX ) is, I just know they are in the real estate services and they basically don’t pay a dividend. I was just looking at this chart.

Here’s my point: When you are trading and when I am talking trading I am talking short-term stuff. I am not talking about buying and holding AT&T ( NYSE: T ) for four generations. When you are trading it is really, really important to look at the chart, to focus on the chart. But the only clarity, seriously, the only clarity in this entire chart is, there are two spots I guess you could say. First, right here. You just know this stock is squeezing. We don’t know whether the stock is going to go continue going like it did, making me look like a genius. The next trade will prove me wrong.

We don’t know that the stock is going to pop up that way. But you have seen this stuff enough times to where there is a pretty high level of certainty that at the very least you can buy it at the end of the day here, keep a stop, a fairly snug stop, below it so that you are only going to get stopped out if this breakout turns out to be a fakeout. So there is one level of clarity here.

And the other one, and this is actually really a stretch, is right here. Here the Bollinger Bands were not as tight, obviously, as they are here. You can see, very, very tight, here not so much. And only, as you look back here in time, can you say, “Oh, well this was a squeeze; this would have been the time to buy it at 8.25. And then a week and a half later it is up at 9.25. Wow! What a great trade!” But you can’t really say that in real-time. You have to just look at the right side of the chart and then take your shot. This time the stock was squeezing, it started to move out but it didn’t blast off like this most recent one did. In part I would say because it was still pretty close to this big sell-off here, where there was more resistance.

So now we are looking at this up here and we see the same kind of move but we CAN learn from history. Here it took a couple more days, actually about three more days, for the stock to start blasting off like this but did continue to move up for a few days.

So let’s be speculators here. You can’t buy this stock here; it is up 6.6 percent today. You can’t buy it without incurring a lot of risk. But if you are already long this stock, obviously closed at $10.00, if the stock were to fall back literally to 9.90, we’ll say 9.85, if it were to fall back to 9.85 then you have got to say that this Phase 1 is done. The first phase of a volatility pattern that I talk about all the time, this is done. So you can put a pretty tight stop here, you will lose 15 cents if you are wrong on the stock. But if the stock continues you have got a tight stop and then you can make some money here.

As I said, whenever you see a stock up 6.5 percent in a day it is a little risky to buy it. The only way you can buy it is if you have a very tight stop on it. And the only way you should be able to justify putting a really tight stop on a stock that has gone up like this is because it is coming out of a really, really tight squeeze and blasting off. It is a pure momentum trade that you think is going to go enough to where you are going to get paid off.

I think the real trade was yesterday when the stock first started to break out. I have already taken my profits. I would love to say that I sold at $10.00 but I didn’t, I sold a little bit early. I am completely out of the stock right now so if the stock runs up to $12.00 it is going to do so without me.

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